Sponsors of Alberta-registered defined benefit (DB) pension plans received welcome news on September 21, 2012 as the Alberta government released new regulations providing temporary relief from solvency funding obligations. The new rules, which apply to all DB pension plans other than specified multi-employer plans, provide a limited opportunity for employers to double from five to 10 years the period over which solvency funding deficiencies must be eliminated.
Specifically, Alberta Regulation 161/2012 permits plan administrators filing an actuarial valuation report with a review date between December 31, 2011 and December 31, 2012 to consolidate all solvency deficiencies and seek the consent of the Superintendent of Pensions for an extension of the solvency deficiency amortization period from five to 10 years. The two primary conditions associated with obtaining such relief are that such consent must be disclosed to members in the first annual statement following receipt of relief, and that should any lump sum payments be made out of the plan (other than ordinary pension benefits), a topup contribution in the amount of the transfer deficiency must be made immediately or as part of the next regular remittance. Additional conditions may be imposed by the Superintendent on a case-by-case basis.
Applications for relief may only be made once. An administrator seeking relief on the basis of a valuation report with a review date of December 31, 2011 may not subsequently seek additional relief should a valuation report with a review date of December 31, 2012 reveal a new solvency deficiency.
Administrators who have already filed valuation reports within the relief period may seek an amortization period extension by filing replacement pages for the valuation report and cost certificate, as well as a revised Form 7 with the custodian/trustee identifying the adjusted schedule of contributions. Recognizing that many employers who have been making contributions on the basis of a five-year amortization period will already have exceeded the annual contributions required under a 10-year schedule, as a transitional measure, those employers will be permitted to cease making special payments until the earlier of such excess funding being absorbed or the end of the plan’s fiscal year.
Administrators who are successful in obtaining solvency funding relief may at any time revert to a five-year amortization period.
Sluggish investment returns and low interest rates continue to result in low funding ratios for many DB plan sponsors. While more limited in scope than the temporary solvency funding relief measures introduced by the Alberta government in 2009, this development will nevertheless be of assistance to many employers in alleviating cash flow pressures associated with sharply rising solvency special payments. The temporary nature of such relief, however, may prompt administrators not otherwise required to prepare a valuation report with a 2012 review date to consider making an early filing to consolidate existing deficiencies and seek an amortization period extension. In addition, we will be watching to see whether the pending new minimum standards pension legislation and supporting regulations will contain more enduring reforms to the solvency funding model.